If you are looking for a sign of weekness keep an eye on the dollar index and the vix... Vix on support, dollar on support and world indexes at resistance...The US dollar index (829) is holding above rising support at 820. The dollar rallied very slightly at the end of last week, averting a break of support, and keeping the dollar uptrend intact. Against the euro, there's an important swing level at $1.3750 (see chart below). The dollar's weakness over the past two months has coincided with equity market strength leading us to conclude that investors have a growing appetite for riskier assets (i.e. they are willing to sell the perceived safehaven dollar and buy equities). We have no proof thus far that the opposite holds true, but we'll certainly be watching to see if further near-term dollar strength equates with renewed equity weakness. Anyone looking for a signal that the recent equity rally - which is, in our view, still a bear market rally - is about to end might well view last week's upturn in the dollar index as their trigger. Against the rand, the dollar has remained above technical support at R8.30 but below a layer of resistance between R8.75 and R8.90. Our chart above shows that the JSE all share index (21705) is still above support provided by the March/April resistance. As long as this remains the case, we'll remain near-term bulls. To become longer-term bulls, we'd have to see the index make a new high above last Tuesday's high at 21930 and then close above January's high at 22919. For now, the index remains in a broad eight-month old range between ca. 18000 and 22919. From current levels, we estimate the index has scope to rally by 5% before reaching range resistance.
